The Italian has been deemed surplus to requirements by Hornets head coach Marco Silva, who started the season with the 28-year-old leading the line but has since left him out of his first-team squad.
Okaka, who still has three-and-a-half years left on the contract he signed when he moved from Anderlecht to Vicarage Road in 2016, says he is unsure why he has fallen out of favour and has resigned himself to leaving in the New Year.
Silva is keen for Watford to sell Okaka, rather than let him leave on loan, in order to raise funds for his own January transfer plans and could have a buyer in the form of Wolves.
Wanderers are reportedly looking to add a striker to their ranks as they push for promotion to the Premier League and are thought to have put Okaka on their shortlist.
Foxes' January recruit Kamal Sowah says although Bayern Munich and Man City were interested, Leicester wanted him the most.
Reports claim that Arsenal are set to move for on-loan Lyon midfielder Tanguy Ndombele at the end of the season.
Ben Chilwell insists the Leicester City squad are focused on finishing the season well in order to qualify for the Europa League.